USD: Policy risks cap recovery – DBS

DBS Group Research economist Philip Wee notes that the Dollar failed to gain traction even after stronger US nonfarm payrolls and a lower unemployment rate in January. He highlights that Federal Reserve officials see no need for additional rate cuts as inflation stays above target. Wee argues that concerns over Federal Reserve independence, fiscal deficits and de-dollarisation are likely to limit USD upside.

Fed stance and politics weigh on Dollar

"The USD struggled to recover despite a rebound in US nonfarm payrolls to 130k in January, which was double the 65k expected."

"Kansas Fed President Jeff Schmid wants the Fed to hold rates at a “somewhat restrictive” level because inflation remained above the 2% target."

"Investors remain wary that the Fed’s steady-for-longer stance would collide with US President Donald Trump’s desire for significantly lower interest rates, especially under the leadership of his Fed Chair nominee, Ken Warsh."

"Lingering doubts about the Fed’s independence are likely to cap the USD’s upside."

"At the same time, the Congressional Budget Office’s renewed warnings about the widening fiscal deficits and rising national debt added to de-dollarisation concerns, i.e., recent news of some countries reducing their exposure to US Treasuries."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)